ALISO VIEJO, CA -- Microsemi Corporation has submitted an offer to acquire PMC-Sierra, Inc in a cash and stock transaction. Based on the closing stock price of Microsemi on Oct. 16, 2015, the transaction is valued at $11.50 per PMC share, representing a premium of approximately 50 percent to the closing price on Oct. 5, 2015, the last trading day prior to the announcement of PMC's proposed acquisition with Skyworks Solutions, Inc.
Microsemi believes its cash and stock proposal would provide PMC shareholders with a substantial premium and immediate cash value, as well as the opportunity to participate in the significant upside potential of a global analog and mixed-signal leader with a highly diversified platform for growth and profitability. Microsemi believes its proposal constitutes a "Superior Proposal" under the terms of PMC's merger agreement with Skyworks.
Under the terms of Microsemi's proposal, PMC shareholders will receive $8.75 in cash and 0.0736 of a share of Microsemi common stock for each share of PMC common stock held at the close of the transaction. The implied total transaction value is approximately $2.4 billion and the implied enterprise value is $2.2 billion, net of PMC's net cash balance as of June 27, 2015.
"Based on extensive discussions with PMC over the past 18 months and comprehensive analysis, we believe this transaction offers compelling strategic and financial benefits for the shareholders of both Microsemi and PMC," said James J. Peterson, Microsemi's chairman and CEO. "This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions targeted for data center and cloud applications, while also adding a complementary portfolio of high-value communications products. Microsemi has a strong track record of integrating acquisitions and driving profitability, and we will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings in a combination with PMC."
The proposal was conveyed in an offer letter to PMC's board of directors on Oct. 19, 2015, together with a copy of a merger agreement, which is on substantially the same terms as the Skyworks merger agreement that Microsemi is prepared to sign. Microsemi is also prepared to amend the transaction structure to an "exchange offer" paving the way for a closing as early as late December 2015, assuming swift action by PMC's board. Microsemi's proposal is not subject to any financing contingency and has been approved by Microsemi's board of directors.
The transaction is expected to be immediately accretive to Microsemi's non-GAAP EPS and free cash flow. Microsemi anticipates achieving more than $100 million in annual cost synergies with greater than $75 million of those to be realized in the first full quarter of combined operations. Microsemi currently estimates more than $0.60 of non-GAAP EPS accretion in the first full year after closing the transaction.
Microsemi intends to fund the transaction and repay its existing credit facility with existing cash, $2.7 billion in new transaction debt and $0.6 billion in Microsemi common stock. Shareholders of Microsemi and PMC will own approximately 85 percent and 15 percent, respectively, of the combined entity post completion of the transaction.
The transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delays) and customary closing conditions, as well as the approval of PMC's shareholders.
Stifel is acting as exclusive financial adviser to Microsemi, along with O'Melveny & Myers LLP who is serving as legal adviser. Morgan Stanley Senior Funding, Inc. is providing committed financing for the transaction to Microsemi.
Reaffirms Fiscal Fourth Quarter 2015 Business Outlook
Microsemi currently expects net sales in the fourth quarter of fiscal year 2015 to be approximately $328 million, and expects non-GAAP diluted earnings per share of between $0.72 and $0.74. This is in line with Microsemi's previous guidance.
Microsemi regularly announces a quarterly outlook in the form of issuing a news release and does not undertake to update any of this information between such public announcements to reflect subsequent events or circumstances. Please refer to the "Cautionary Note Concerning Forward-Looking Statements" below for risks that may affect future actual results.
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